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Get a break-even analysis.
A professional broker should be able to provide you with a complete analysis
taking all of the important factors into consideration, and clearly defining
the break-even point, providing just the information you need to make an
informed decision. For a rough and very simplified break-even analysis, do the
following: Determine the total cost of the transaction, and then calculate how
much you will save every month. Divide the total cost by the monthly savings to
find the number of months you will have to stay in the property to break even.
Example: if your transaction costs $2000 and you save $50/month, you break even
in 2000/50 = 40 months. In this case you'd refinance if you planned to stay in
your home for at least 40 months.
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Make sure you receive a Good Faith Estimate.
This is a written statement of fees associated with the transaction and the law
states that you must receive a Good Faith Estimate and Truth in Lending from
any Lender or Broker. Keep in mind APR’s and Good Faith Estimates can be
calculated differently across lenders or brokers; therefore, this does not
eliminate the need for a total cost analysis.
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Get an idea of your homes value before paying for an appraisal.
If you suspect that your home value may be too low for the loan, your mortgage
broker should be able to arrange for a comparable search by an appraiser. This
will provide you with a range of possible values. Don’t waste your money on a
full appraisal if you are doubtful about the value of your home.
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Provide your documents as quickly as possible.
To assist in meeting your closing date and staying within your rate lock
period, provide any required documents to your broker as quickly as possible.
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Get the rate lock in writing.
When you have locked your interest rate, be sure to get in writing the details
of the lock.
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Consult with your broker before making any major purchases during the loan
process. Remember that your loan approval is based on your total
debt compared to your total income. Adding any debt during the loan process can
impact this and also may adversely affect your credit, putting your loan at
risk.
The most common reason for refinancing is to save money. Saving money through
refinancing can be achieved in two ways:
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By obtaining a lower interest rate that causes one's monthly mortgage payment
to be reduced.
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By reducing the term of the loan, thus saving money over the life of the loan.
For example, refinancing from a 30-year loan to a 15-year loan might result in
higher monthly payments, but the total of the payments made during the life of
the loan can be reduced significantly.
People also refinance to convert their adjustable loan to a fixed loan. The
main reason behind this type of refinance is to obtain the stability and the
security of a fixed loan. Fixed loans are very popular when interest rates are
low, whereas adjustable loans tend to be more popular when rates are higher.
When rates are low, homeowners refinance to lock in low rates. When rates are
high, homeowners prefer adjustable loans to obtain lower payments. A third
reason why homeowners refinance is to consolidate debts and replace
high-interest loans with a low-rate mortgage. The loans being consolidated may
include second mortgages, credit lines, student loans, credit cards, etc. In
many cases, debt consolidation results in tax savings, since consumers loans
are not tax deductible, while a mortgage loan is tax deductible. The answer to
the question "Should I refinance?" is a complex one, since every situation is
different and no two homeowners are in the exact same situation. Even the
conventional wisdom of refinancing only when you can save 2% on your mortgage
is not really true. If you are refinancing to save money on your monthly
payments, it would be more appropriate to compare the cost of the refinance
against the length of time you anticipate owning the home. Contact your Lucidia
Group Mortgage Advisor for an in depth analysis. Sometimes, you do not have a
choice––you are forced to refinance. This happens when you have a loan with a
balloon provision, but with no conversion option. In this case it is best to
refinance a few months before the balloon comes due. Whatever you choose to do,
consulting with your seasoned Mortgage Advisor and utilizing the tools
available on Lucidiagroup.com can save you time and money.
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